---

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

FORM 10-Q

[X] Quarterly Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended: December 31, 2009

OR

[_] Transition Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934. For the transition period from: to

Commission File Number: 000-030813

AlphaRx, Inc.(Name of Small Business
Issuer in its Charter)

|Delaware                        | 98-0416123                          
|------------------------------- | ------------------------------------
|(State or other jurisdiction of | (I.R.S. Employer Identification No.)
|incorporation or organization)  |                                     

168 Konrad Crescent, Suite 200 Markham, Ontario, Canada L3R
9T9 (Address of principal executive offices)

Registrant's telephone number, including area code: (905)
479-3245

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 par value(Title of Class)

Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes [X]  No [   ]

The number of outstanding shares of registrant's Common Stock
on February 11, 2010 was 92,371,192.

Transitional Small Business Disclosure Format. Yes [ 
 ]  No [X]

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ALPHARX,
INC.

FORM 10-Q

DECEMBER31, 2009

TABLE OF CONTENTS

|Unaudited Interim Consolidated Balance
      Sheets as of December 31 2009 and September 30, 2009 (Audited)                                                   | 3    
|------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----
|Unaudited Interim Consolidated Statements of Operations and
      Comprehensive Loss for the three months ended December 31, 2009 and
      December 31, 2008 | 4    
|Unaudited Interim Consolidated Statements
      of Changes in Shareholders Deficit as of December 31, 2009 and September
      30, 2009                      | 5    
|Unaudited Interim Consolidated Statements of Cash Flow for
      the three months ended December 31, 2009 and December 31, 2008                               | 6    
|Condensed Notes to Unaudited Interim
      Consolidated Financial Statements                                                                                  | 7 - 9
|Managements Discussion and Analysis of Financial Condition
      and Plan of Operation                                                                       | 10-15
|Other Information                                                                                                                                             | 16   

2

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ALPHARx, INC.INTERIM CONSOLIDATED BALANCE
SHEETSAS AT DECEMBER 31, 2009 AND SEPTEMBER 30, 2009 (All amounts
in US Dollars)

|                                                                 |   | December 31, |   |   | September 30, |  
|---------------------------------------------------------------- | - | ------------ | - | - | ------------- | -
|                                                                 |   | 2009         |   |   | 2009          |  
|                                                                 |   | (UNAUDITED)  |   |   | (AUDITED)     |  
|CURRENT ASSETS                                                   |   |              |   |   |               |  
|Cash and Cash Equivalents                                        | $ | 18,828       |   | $ | 14,006        |  
|Accounts Receivable                                              |   | 5,813        |   |   | 42,330        |  
|TOTAL CURRENT ASSETS                                             |   | 24,641       |   |   | 56,336        |  
|PROPERTY, PLANT and EQUIPMENT, net                               |   | 74,354       |   |   | 78,237        |  
|TOTAL ASSETS                                                     |   | 98,995       |   |   | 134,573       |  
|CURRENT LIABILITIES                                              |   |              |   |   |               |  
|Accounts Payable and Accrued Liabilities                         |   | 457,923      |   |   | 414,872       |  
|Notes Payable (Note 3)                                           |   | 668,006      |   |   | 585,284       |  
|Deferred Revenue                                                 |   | -            |   |   | 35,000        |  
|TOTAL
      CURRENT LIABILITIES                                  |   | 1,125,929    |   |   | 1,035,156     |  
|STOCKHOLDERS DEFICIENCY                                         |   |              |   |   |               |  
|Common Stock: $ 0.0001 par value,                                |   |              |   |   |               |  
|Authorized: 250,000,000 shares; Issued and outstanding           |   |              |   |   |               |  
|December 31 and September 30, 2009-
      92,371,192 (Notes 5-7) |   | 9,238        |   |   | 9,238         |  
|Additional paid-in capital                                       |   | 17,052,076   |   |   | 17,052,076    |  
|Deficit                                                          |   | (18,184,338  | ) |   | (18,061,820   | )
|Accumulated Other Comprehensive Loss                             |   | (5,833       | ) |   | (2,317        | )
|Non-controlling Interest                                         |   | 101,923      |   |   | 102,240       |  
|TOTAL DEFICIENCY                                                 |   | (1,026,934   | ) |   | (900,583      | )
|TOTAL LIABILITIES AND DEFICIENCY                                 | $ | 98,995       |   | $ | 134,573       |  

|Signed: Michael Lee | Signed: Dr. Ford Moore
|------------------- | ----------------------
|Director            | Director              

See condensed notes to unaudited consolidated financial
statements

3

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ALPHARx, INC.INTERIM CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE LOSS FOR THE THREE MONTHS ENDED DECEMBER 31,
2009 AND 2008 (UNAUDITED) (All amounts in US Dollars)

|December 31,                                                                          |   | 2009       |   |   | 2008       |  
|------------------------------------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|Consulting Revenue                                                                    |   | -          |   | $ | 86,100     |  
|License Fees and Royalties                                                            |   | 51,570     |   |   | 17,474     |  
|TOTAL REVENUES                                                                        |   | 51,570     |   |   | 103,574    |  
|General and Administrative Expenses                                                   |   | 98,478     |   |   | 53,243     |  
|Research and Development Expenses                                                     |   | 45,391     |   |   | 42,959     |  
|Depreciation                                                                          |   | 10,081     |   |   | 17,176     |  
|LOSS FROM OPERATIONS                                                                  |   | (102,380   | ) |   | (9,804     | )
|OTHER EXPENSES                                                                        |   |            |   |   |            |  
|Interest Expense,
      net                                                           |   | (19,835    | ) |   | (10,154    | )
|LOSS BEFORE INCOME TAXES                                                              |   | (122,215   | ) |   | (19,958    | )
|Income Tax                                                                            |   | -          |   |   | -          |  
|NET LOSS                                                                              |   | (122,215   | ) |   | (19,958    | )
|Net Income/Loss
      attributable to Non-controlling interests                       |   | (303       | ) |   | 1,388      |  
|NET LOSS ATTRIBUTABLE TO ALPHARX INC. STOCKHOLDERS                                    |   | (122,518   | ) |   | (18,570    | )
|COMPREHENSIVE LOSS                                                                    |   |            |   |   |            |  
|Net Loss                                                                              |   | (122,215   | ) |   | (19,958    | )
|Translation Adjustment                                                                |   | (4,136     | ) |   | 16,461     |  
|Comprehensive Loss                                                                    |   | (126,351   | ) |   | (3,497     | )
|Less: Comprehensive Loss/Income
      attributable to Non-controlling interests       |   | 317        |   |   | (1,081     | )
|COMPREHENSIVE LOSS ATTRIBUTABLE TO ALPHARX INC.
      STOCKHOLDERS                    | $ | (126,034   | ) | $ | (4,578     | )
|Per Share Data                                                                        |   |            |   |   |            |  
|Net Loss per Share, basic and diluted attributable to
      AlphaRx Inc. stockholders | $ | (0.01      | ) | $ | (0.00      | )
|Weighted Average Number of Common Shares
      Outstanding                            |   | 92,371,192 |   |   | 92,371,192 |  

See condensed notes to interim consolidated financial
statements

4

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ALPHARx, INC.INTERIM CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS DEFICIENCY FOR THE PERIOD ENDED DECEMBER 31, 2009
(UNAUDITED) (All amounts in US Dollars)

Common StockNumber of Shares
    Amount
    Additional Paid in Capital
    Accumulated Other Com- prehensive
      Loss
    Deficiency
    Total AlphaRx Inc. Stockholders
      Deficiency
    Non- controlling Interest
    Total DeficiencyBalance as of September 30,
      2008
    92,371,192
    $9,238
    $16,978,351
    (6,690)
    (17,619,944)
    (639,045)
    101,624
    (537,421)Warrants issued for services
    
    
    73,725
    
    
    73,725
    
    73,725Foreign Currency Translation
    
    
    
    4,373
    
    4,373
    772
    5,145Non- controlling interest
    
    
    
    
    
    
    (156)
    (156)Net Loss 2009
    
    
    
    
    (441,876)
    (441,876)
    
    (441,876)Balance as of September 30,
      2009
    92,371,192
    $9,238
    $17,052,076
    $(2,317)
    (18,061,820)
    $(1,002,823)
    $102,240
    $(900,583)Foreign Currency Translation
    
    
    
    (3,516)
    
    (3,516)
    (620)
    (4,136)Non- controlling interest
    
    
    
    
    
    
    303
    303Net Loss for the Period
    
    
    
    
    (122,518)
    (122,518)
    
    (122,518)Balance as of December 31, 200992,371,192
    $9,238
    $17,052,076
    $(5,833)
    $(18,184,338)
    (1,128,857)
    $101,923
    $(1,026,934)


See condensed notes to interim consolidated financial
statements

5

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ALPHARx, INC.INTERIM CONSOLIDATED STATEMENTS OF
CASH FLOWS FOR THE THREE MONTHS ENDED DECEMBER 31, 2009 AND 2008
(UNAUDITED)(All amounts in US Dollars)

|Three months ended December 31,                                                   |   | 2009     |   |   | 2008    |  
|--------------------------------------------------------------------------------- | - | -------- | - | - | ------- | -
|CASH FLOWS FROM OPERATING ACTIVITIES                                              |   |          |   |   |         |  
|Net Loss                                                                          | $ | (122,215 | ) | $ | (19,958 | )
|Adjustments to reconcile
      net loss to net cash used in operating activities: |   |          |   |   |         |  
|Depreciation and amortization                                                     |   | 10,081   |   |   | 17,176  |  
|Changes in assets and
      liabilities:                                          |   |          |   |   |         |  
|Decrease
      (Increase) in accounts receivable                                  |   | 36,517   |   |   | (68,729 | )
|Decrease (Increase) in other assets                                               |   | -        |   |   | (14,350 | )
|(Decrease)
      Increase in accounts payable and accrued liabilities             |   | 43,051   |   |   | 13,061  |  
|Accrued interest on notes payable                                                 |   | 16,936   |   |   | 8,559   |  
|Increase
      (Decrease) in deferred revenue                                     |   | (35,000  | ) |   | 33,333  |  
|NET CASH USED IN OPERATING ACTIVITIES                                             |   | (50,630  | ) |   | (30,908 | )
|CASH FLOWS FROM INVESTING ACTIVITIES                                              |   |          |   |   |         |  
|Purchase
      of Machinery & Equipment, net of disposals                         |   | (5,691   | ) |   | -       |  
|NET CASH PROVIDED BY INVESTING ACTIVITIES                                         |   | (5,691   | ) |   | -       |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                              |   |          |   |   |         |  
|Issuance
      (repayment) of Notes Payable, net                                  |   | 57,816   |   |   | 42,019  |  
|NET CASH PROVIDED BY FINANCING ACTIVITIES                                         |   | 57,816   |   |   | 42,019  |  
|Effect of exchange rate changes on cash and cash equivalents                      |   | 3,327    |   |   | (14,350 | )
|NET INCREASE (DECREASE) IN CASH                                                   |   | 4,822    |   |   | (3,239  | )
|CASH, and cash equivalents, beginning of period                                   |   | 14,006   |   |   | 24,623  |  
|CASH, and cash equivalents, end of period                                         | $ | 18,828   |   | $ | 21,384  |  
|Taxes Paid                                                                        | $ | 0        |   | $ | 0       |  
|Interest Paid                                                                     | $ | 0        |   | $ | 0       |  

See condensed notes to interim consolidated financial
statements

6

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ALPHARx INC.CONDENSED NOTES TO INTERIM UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2009
(UNAUDITED)

NOTE 1. NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS

The accompanying interim unaudited consolidated financial
statements have been prepared in accordance with the instructions to Form 10-Q
and do not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of all recurring accruals) considered
necessary for fair presentation have been included. Operating results for the
interim periods are not necessarily indicative of the results that may be
expected for the year ended September 30, 2010. Interim unaudited consolidated
financial statements should be read in conjunction with the Companys annual
audited financial statements.

NOTE 2. NATURE OF BUSINESS AND GOING CONCERN

ALPHARx, INC. (the Company) was incorporated under the laws
of the State of Delaware on August 7, 1997. The company is an emerging
pharmaceutical company specializing in the formulation of human therapeutic
products using proprietary drug delivery technologies.

The interim unaudited consolidated financial statements reflect
the activities of AlphaRx Inc., 100% of AlphaRx Canada Limited and 85% of
AlphaRx International Holdings Limited and AlphaRx Life Sciences Ltd. (AIHs
wholly owned subsidiary) collectively the Company. All material inter-company
accounts and transactions have been eliminated.

The accompanying interim unaudited consolidated financial
statements have been prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. Accordingly, they do not include any adjustments relating to the
realization of the carrying value of assets or the amounts and classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern. Continuance of the Company as a going concern is dependent on
its future profitability and on the on-going support of its shareholders,
affiliates and creditors. Factors relating to going concern issues include
working capital deficiencies, operating losses, shareholders deficits, and
continued reliance on external funding sources. In order to mitigate the going
concern issues, the Company is constantly pursuing new business arrangements and
striving to achieve profitability, and seeking capital funding on an ongoing
basis via the issuance of promissory notes, and private placements.

NOTE 3. NOTES PAYABLE

The Company issued approximately $57,816 in promissory notes
during the three months ended December 31, 2009. (During the three months ended
December 31, 2008 the Company issued approximately $42,019 in promissory notes).
These notes bear interest at 12% per annum and are repayable on the first
anniversary date of issuance. Previously issued promissory notes bear interest
at rates of 8% - 12% per annum. Prepayment of these notes prior to the first
anniversary date is permitted.

See also note 8  Related Party Transactions.

NOTE 4. NON-CONTROLLING INTEREST

Effective June 22, 2006, AlphaRx International Holdings Ltd.
(AIH) issued 1,500 shares of its common stock to New Super Limited (NSL) at
a price of approximately $HK 6,667 per share or $HK 10 million in cash. (USD
$1,288,826). There are 10,000 common shares outstanding of which 8,500 or 85%
belong to the Company. With the consolidation of only 85% of AIH, a
non-controlling interest was established, representing net amounts owing to the non-controlling
shareholder. The capital infusion into AIH is accounted for as additional paid
in capital on the interim consolidated financial statements of the Company.

7

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NOTE 5. COMMON STOCK

The Company is authorized to issue 250,000,000 shares of common
stock. As of December 31, 2009 and 2008 there were 92,371,192 shares of Common
Stock issued and outstanding with a stated par value of $0.0001 per share. The
Company did not issue any shares of Common Stock during the three months ended
December 31, 2009 and 2008.

NOTE 6. STOCK OPTION PLANS

The Company has one Stock Option Plan (the 2008 Stock Option
Plan) under which officers, key employees, certain independent contractors, and
independent directors may be granted options to purchase shares of the Companys
authorized but unissued Common Stock. All outstanding options currently expire
no later than June 30, 2012. Proceeds received by the Company from exercises of
stock options are credited to Common Stock and additional paid-in capital.

At the Companys Annual General Meeting held November 26, 2008
a majority of stockholders approved amendments to the existing Stock Option
Plans including, among others: (i) combining the 2004 and 2006 Plans into the
2008 Stock Option Plan for ease of administration; (ii) providing a cap for the
number of options to be issued at 22,000,000; (iii) providing guidelines for
exercise prices such that the exercise price of any newly granted option is
never less than the market value or in the case of a 10%+ holder, never less
than 110% of the market value on the date of grant; (iv) providing for a maximum
term of 5 years for any option granted; (v) provide for a vesting schedule
whereby vesting must occur over at least 18 months with no more than
1/6th of the options granted vesting in any 3 month period; (vi)
providing for the maximum number of options to be granted to any one individual
in any 12 month period to be no more than 5% of the issued and outstanding
common stock, and (vii) providing for a maximum number of options to be granted
to any Investor Relations party to be no more than 2% of the issued and
outstanding common stock.

As a result of the new terms governing the Companys 2008 Stock
Option Plan, the maximum number of options that can still be issued totals
4,310,000, regardless of whether existing options are exercised or cancelled.

During the three months ended December 31, 2009 and 2008 no
options were granted and no options were exercised. Additional details of the
2008 Plan, as at December 31, 2009 are as follows:

2008 Stock Option Plan
    Number Granted, Exercised,
      Expired or Cancelled
    Issue Date
    Exercise Price $
    Share Price on
      Grant Date $
    Expiry Date
    Remaining Contractual
      Life (Years)Inception
    0Granted
    12,720,000
    15/11/2004
    0.15
    0.11
    6/30/2012
    2.50Cancelled
    (6,000,000)
    12/28/2007
    -
    -
    -
    -Granted
    500,000
    15/11/2004
    0.40  0.50
    0.11
    6/30/2012
    2.50Cancelled
    (40,000)
    12/28/2007
    -
    -
    -
    -Expired
    (460,000)
    2/10/2008
    -
    -
    -
    -Granted
    7,000,000
    10/1/2005
    0.16
    0.14
    6/30/2012
    2.50Granted
    390,000
    8/2/2005
    0.15
    0.14
    6/30/2012
    2.50Cancelled
    (40,000)
    12/28/2007
    -
    -
    -
    -Granted
    100,000
    5/25/2005
    0.13
    0.13
    6/30/2012
    2.50Granted
    3,290,000
    10/17/2005
    0.075
    0.08
    6/30/2012
    2.50


8

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Cancelled
    (560,000)
    12/28/2007
    -
    -
    -
    -Granted
    90,000
    1/3/2007
    0.10
    0.10
    1/3/2012
    2.01Exercised
    (2,730,000)
    12/27/2007
    0.075
    -
    -
    -Remaining
    14,260,000
    As at December 31, 2009 and 2008Weighted Average Exercise Price and
      Contractual Life of Options Remaining in Years
    $0.15
    
    
    2.48


The Company has adopted the fair value accounting for employee
stock options. The Company did not record any stock based compensation expense
during the three months ended December 31, 2009 and 2008. The Black-Scholes
option-pricing model is used to calculate this expense. There are no further
stock based compensation expenses to be recorded based on options granted to
date and their existing terms and conditions. Multiplying the options by their
exercise price and dividing the total obtained by the total outstanding options
calculated the weighted average exercise price.

NOTE 7. WARRANTS

The Company did not issue any warrants, nor were any warrants
exercised during the three-month period ended December 31, 2009 and 2008.
Warrants to purchase 5,000,000 shares of Common Stock expired on December 31,
2009. The Company has the following warrants outstanding to purchase shares of
Common Stock as of December 31, 2009:

Outstanding as at
      December 31, 2009
    Issue Date
    Exercise Price
      $
    Share Price on
      Grant Date $
    Expiry Date
    Remaining
      Contractual Life (Years)
    Reason for Issuance3,000,000
    4/1/2009
    0.03
    0.03
    3/31/2014
    4.25
    Issued in exchange for financial advisory
      services.


NOTE 8: RELATED PARTY TRANSACTIONS

The Company sources some of its funding in the form of
promissory notes from Michael Lee  President and CEO. The Company is indebted
to Mr. Lee in the amount of $51,936 including interest of $9,974 as of December
31, 2009. (December 31, 2008: $43,821 including interest of $4,264). These
promissory notes bear interest at 12% per annum and are unsecured.

NOTE 9: RECLASSIFICATIONS

Certain amounts have been reclassified to conform to current
period presentation. Specifically the Company has adopted ASC TOPIC 810 
Non-controlling Interests in Consolidated Financial Statements. The objective of
this Statement is to improve the relevance, comparability, and transparency of
the financial information that a Company provides.

NOTE 10. SUBSEQUENT EVENTS

Management has reviewed subsequent events through the date of
filing the quarterly report on Form 10-Q that includes these unaudited interim
consolidated financial statements with the US Securities and Exchange
Commission. There were no material subsequent events since February 8, 2010
(review completion date) that would require recognition or note disclosure in
these financial statements.

9

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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATION

The following discussion and analysis should be read in conjunction with the Financial Statements, including the condensed Notes thereto, appearing in this Form 10-Q. For additional information and complete financial statement note disclosure as of
September 30, 2009, reference should be made to the annual Form 10-K filed during December 2009. Except for the historical information contained herein the foregoing discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those projected in the forward-looking statements discussed herein.

General

AlphaRx is a drug delivery company specializing in the development of innovative human therapeutic products for the pharmaceutical and consumer health care market. Our core competence is in the development of novel drug formulations for therapeutic
molecules or compounds that have exhibited poor gastro intestinal absorption due to poor solubility or have yet be administerable to the human body with an acceptable delivery method. Our drug delivery system is versatile and offers significant
flexibility in the development of suitable dosage formulations (i.e. oral, topical or parenteral) to meet the requirements of specific drug molecules. We are no longer pursuing direct marketing and sales of our market ready products, nor do we
intend to pursue direct marketing and commercialization of any newly developed products. The absence of marketing expertise, and significant ongoing funding required to introduce and promote a product successfully into the market are the principal
factors limiting our ability to directly market our proprietary products. We are and will continue to seek out established collaborative partners, distributors and licensees to commercialize and market our products in exchange for milestone payments
and royalties.

The costs incurred for individual research and development initiatives to date cannot be readily determined because (i) there is no clear distinction between initiatives in order to be able to differentiate between them; (ii) all initiatives have a
common goal and that is to adopt our Bioadhesive Colloidal Dispersion drug delivery system to the specific drug in order to improve that drugs effectiveness; and (iii) we do not maintain a time control system to separately classify research
and development activities between similar initiatives.

The nature, timing and estimated costs to complete a research and development initiative and anticipated completion dates cannot be estimated because: (i) the nature of research is experimental and we could encounter unforeseen situations which
could significantly delay project completion or require us to abandon the project; (ii) timing to complete a research initiative depends, to a certain extent, on financial resources and we cannot predict with any degree of certainty that financial
resources will be available when needed to complete any specific initiative; (iii) we cannot significantly influence our partners and licensees as to timing and completion of collaborative efforts, and (iii) cost estimates cannot be predicted with
any acceptable degree of accuracy due to unforeseen issues arising during the clinical stages or the approval stages of any specific initiative.

If we cannot complete our research and development initiatives on a timely basis consequences to our operations could be significant to the point where the initiative would be delayed or even abandoned. We could also face the risk of competitors
developing the same or similar products and being first to market. Finally, our failure to develop products on a timely basis could substantially impair our ability to generate revenues and materially harm our financial position.

We cannot predict the timing of material net cash inflows from significant initiatives due to a number of factors including (i) availability of financial resources required to market a new product via a partner, (ii) our lack of experience in
bringing a new product to market successfully and gaining market share; (iii) competitors products and the nature and timing of their marketing initiatives.

10

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We intend to continue investing in the further development of
our drug delivery technologies and to actively seek collaborators and licensees
to accelerate the development and commercialization of products incorporating
our drug delivery systems. Depending upon a variety of factors, including
collaborative arrangements, available personnel and financial resources, we will
conduct or fund clinical trials on such products and will undertake the
associated regulatory activities.

Recent Developments

We entered into a collaboration agreement during August 2009
with Venturepharm Group, a China based company that provides world-class
services for the biotechnology and pharmaceutical industries. Our objectives
include the adaptation of our delivery technology to improve the quality and
efficacy of pharmaceutical products selected for development in China.
Venturepharm Group agrees to provide us with lab space, manufacturing
facilities, regulatory services and distribution services all at a competitive
rate. We subsequently entered into an agreement with Venturepharm Group for the
provision of the active pharmaceutical ingredient for ARX 1088, an orally active
interferon inducer intended for the treatment of Hepatitis. We are focused on
commercializing ARX 1088 in China and South America.

We appointed Ms. Ruby Hui as the President of China Operations
through our 85% subsidiary  AlphaRx Life Sciences Ltd. during the three months
ended December 31, 2009. We have the following portfolio of short term and long
term drug candidates which we will be attempting to commercialize mainly in the
China market over the coming years. Patents or patents pending protect these
product candidates:

Product
      Name
    Dosage Form
    IndicationCHX Rinse
    Liquid
    Gum DiseaseIndaflex
    Topical Cream
    PainDicloflex
    Topical Cream
    PainARX606 T
    Topical Cream
    Wound
      TreatmentARX2038
    Tablet ER
    Anti-AnxietyARX2038
    Tablet
      ER
    Lipid
      ManagementARX1088
    Tablet ER
    HepatitisZysolin
    Inhalation Aerosol
    PneumoniaVansolin
    Inhalation Aerosol
    PneumoniaGAI-122
    Injectible
    Stroke


We also signed a collaboration and licensing agreement with
Riso Pharma Technology in September 2009. Under the agreement Riso Pharma
Technology will undertake development and potential commercialization of
ARX606T, which makes use of our proprietary formulation technology to deliver a
safe and well-known growth factor topically to patients with severe wounds and
ulcers.

We established a feasibility and option agreement in October
2008 with Gaia BioPharma Limited, a privately held early stage biopharmaceutical
company. We concluded formulation development on GAI-122 during August 2009.
GAI-122 is a drug used for the treatment of delirium caused by prolonged
surgery. GAI-122 is proceeding to the clinical trial materials manufacturing
stage and is expected to enter clinical trials by the middle of 2010. GAI-122 is
protected by 4 United States patent applications.

One of our most promising drug candidates is Zysolin that uses
an inhalable version of the drug Tobramycin (an antibiotic used to treat
Gram-negative bacteria) to treat Gram-negative pneumonia. We have completed
animal testing on Zysolin and are in the process of preparing protocols for
Phase I/II human trials. We have completed safety and efficacy testing on
Streptomycin (a drug used to treat tuberculosis) and are seeking collaborative
partner(s) to initiate human trials on this product candidate. We continue to
test formulations and conduct research on Vansolin (MRSA- pneumonia) and
Streptomycin (tuberculosis). The delivery route for all of the above product
candidates is Intravenous (I.V.) or Intratracheal (I.T.).

11

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During March 2008 Cypress Bioscience, Inc. (Cypress)
completed the acquisition of our partner Proprius Pharmaceuticals Inc.
(Propius). Proprius has development and commercialization rights for Indaflex
 our topical cream for the treatment of osteoarthritis of the knee. Additional
funding is now available through Cypress in order to further Phase II and III
human trials for Indaflex and continue the FDA application process. Under the
terms of our agreement, Proprius will undertake completion of clinical trials
for Indaflex and will have exclusive global rights (except for Asia and Mexico)
to sell and or sublicense Indaflex and any successor NSAID products developed by
us. Should clinical trials for Indaflex be successful and sales commence, we
will receive clinical trial completion milestone payments and sales milestone
payments including a milestone payment of $3 million for the successful
completion of the Phase II trials. In addition to the milestone payments, we
will receive royalty payments on sales of Indaflex by Proprius, its affiliates
and its sublicensees. There are no assurances or guarantees that Proprius and or
Cypress will continue with human trials of Indaflex.

Overview of Results of Operations

Three
    
    Dec 31
    
    
    Sep 30
    
    
    June 30
    
    
    Mar 31
    
    
    Dec 31
    
    
    Sep 30
    
    
    June 30
    
    
    Mar 31Months
    
    2009
    
    
    2009
    
    
    2009
    
    
    2009
    
    
    2008
    
    
    2008
    
    
    2008
    
    
    2008Ended
    
    **$**
    
    
    **$**
    
    
    **$**
    
    
    **$**
    
    
    **$**
    
    
    **$**
    
    
    **$**
    
    
    **$**Net Sales
    
    51,570
    
    
    88,815
    
    
    20,982
    
    
    164,109
    
    
    103,574
    
    
    16,326
    
    
    46,798
    
    
    17,243Net Income (Loss)
    
    (122,215
    )
    
    (208,562
    )
    
    (235,695
    )
    
    23,420
    
    
    (19,958
    )
    
    (59,077
    )
    
    (294,670
    )
    
    (396,535
    )Net (Income) Loss per Share (1)
    
    (0.01
    )
    
    (0.01
    )
    
    (0.01
    )
    
    0.00
    
    
    (0.00
    )
    
    (0.01
    )
    
    (0.01
    )
    
    (0.01
    )


NOTE (1) Net Loss per share on a quarterly basis does not equal
net Loss per share for the annual periods due to rounding.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER
31, 2009, AS COMPARED TO THE THREE MONTHS ENDED DECEMBER 31, 2008

The Company incurred a net loss of $122,215 for the three month
period ended December 31, 2009 as compared to a net loss of $19,958 incurred for
the same period a year ago, an increase of $102,257. The Company signed two
co-development agreements in the three months ended December 31, 2008 and
generated $86,100 in consulting revenues for that period with no comparable
revenue during the current period. This is the primary cause for the increase in
net loss between periods.

Revenues

Total revenues for the three-month period ended December 31,
2009 were $51,570 as compared to $103,574 generated for the same period a year
ago, a decrease of $52,004 or about 50%. Royalty revenues were comparable year
over year at $16,570 for the three months ended December 31, 2009 as compared to
$17,474 for the same period a year ago. The Company also generated licensing
revenues in the amount of $35,000 for the three months ended December 31, 2009
with no comparable revenues for the same period a year ago. We did not generate
any consulting revenues for the three months ended December 31, 2009 as compared
to $86,100 in consulting revenues generated for the same period a year ago. We
continue to pursue revenue opportunities in all forms (consulting, royalties and
license fees).

12

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General and Administrative Expenses

General and Administrative expenses consist primarily of personnel costs related to general management functions, finance, office overheads, as well as insurance costs and professional fees related to legal, audit and tax matters.

General and Administrative expenses were $98,478 for the three month period ended December 31, 2009 as compared to $53,243 incurred for the same period a year ago, an increase of $45,235 or about 85%. We realized a foreign exchange loss
of $4,398 during the three months ended December 31, 2009 as compared to a foreign exchange gain of $37,510 incurred in the same period a year ago, an increase in this expense of $41,908 between periods.

Research and Development Expenses

Research and development expenses include costs for scientific personnel, supplies, equipment, and outsourced clinical and other research activities.

Research and development expenses for the three months ended December 31, 2009 were $45,391 as compared to $42,959 incurred for the same period a year ago, an increase of $2,432 or about 6%. We currently have 3 full time staff. We are
maintaining our costs to be more in line with revenue expectations until capital markets improve or additional funding is sourced. Research efforts will again increase in the future depending on the timing and availability of additional funds. We
also seek collaborative partners in order to obtain third party funding for certain drug candidates that show commercial promise in exchange for commercialization rights.

Depreciation

Depreciation totalled $10,081 for the three months ended December 31, 2009 as compared to $17,176 incurred during the same period a year ago, a decrease of $7,095 or about 41%. Our capital asset purchases were minimized during the last
two fiscal years totalling less than $17,000. Certain assets are now fully depreciated resulting in decreasing depreciation expense. Should any assets become permanently impaired they are written off to income as determined.

Loss from Operations

Loss from operations were $102,380 for the three months ended December 31, 2009 as compared to a loss of $9,804 incurred for the same period a year ago, an increase of $92,576.

Interest Expense

Interest expense for the three months ended December 31, 2009 was $19,835 as compared to interest expense of $10,154 generated during the same period a year ago. There were approximately $668,000 in promissory notes outstanding as of
December 31, 2009 as compared to approximately $420,000 as of December 31, 2008 leading to an increase in interest expense. Credit card payables have also increased during the period ended December 31, 2009 as compared to the same period a year
ago, leading to an increase in interest expense.

Non-Controlling interest in gain/ (loss) of Consolidated Subsidiaries

We reflected a non-controlling interest loss of $303 for the three months ended December 31, 2009 as compared to an income of $1,388 for the same period a year ago. Non-Controlling interest represents our minority shareholders
proportionate interest in our 85% owned subsidiary  AIH. The non-controlling interest resulted in the investment in our subsidiary AlphaRx International Holdings Ltd. by an independent third party  New Super Ltd. during June 2006.

13

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Net Loss Attributable to AlphaRx Inc. Stockholders

As a result of the above mentioned revenue and expense items, we incurred a net loss attributable to AlphaRx Inc. stockholders of $122,518 for the three months ended December 31, 2009 as compared to a net loss of $18,570 incurred in the same
period a year ago.

Translation Adjustment

This adjustment results from unrealized foreign exchange gain and losses stemming from translation of our foreign subsidiaries into U.S. Dollars. We incurred a translation adjustment loss of $4,136 for the three months ended December 31, 2009 as
compared to a translation gain of $16,461 for the same period a year ago.

LIQUIDITY AND CAPITAL RESOURCES

As at December 31, 2009 the Company had a working capital
deficiency of $(1,101,288) as compared to a working capital deficiency of
$(978,820) as at September 30, 2009. The Company has also increased its
stockholders deficiency to $(1,026,934) as at December 31, 2009 compared to a
stockholders deficiency of $(900,583) as at September 30, 2009. We did not
issue any stock during the three months ended December 31, 2009.

We have a licensing arrangement with Andromaco, which provides
us with a small royalty stream. We entered into collaboration and licensing
agreements with Riso Pharma Technology and Venturepharm Group in recent months.
We entered into two co-development agreements during the three months ended
December 31, 2008 and we continue to seek out new arrangements. We also have
licensing arrangements with Proprius Pharmaceuticals Inc. and a joint venture
agreement with AlphaAP Inc., which may provide us with milestone payments and/or
royalty streams in the future. There is no assurance that such payments or
royalty streams will materialize.

Since inception, we have financed operations principally from
the sale of Common Stock and issuance of promissory notes and expect to continue
this practice to fund our ongoing activities.

We currently do not have sufficient resources to complete the
commercialization of any of our proposed products or to carry out our entire
business strategy. Therefore, we will likely need to raise substantial
additional capital to fund our operations in the future. We cannot be certain
that any financing will be available when needed on acceptable terms or at all.
Any additional equity financings will be dilutive to our existing stockholders,
and debt financing, if available, may require additional stock to be issued
and/or involve restrictive covenants on our business.

We expect to continue to spend capital on:

1. research and development programs; 2. preclinical
studies and clinical trials; 3. regulatory processes; and 4. third party
licensees and distribution partners to manufacture and market our products for
us.

The amount of capital we may need will depend on many factors,
including:

1. the progress, timing and scope of our research and
development programs; 2. the progress, timing and scope of our preclinical
studies and clinical trials; 3. the time and cost necessary to obtain
regulatory approvals; 4. the time and cost necessary to establish or to
retain sales and marketing partners to market our products; 
5. the time and cost necessary to respond to technological and
market developments; and 6. new collaborative, licensing and other
commercial relationships that we may establish.

14

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The inability to raise capital would have a material adverse
effect on the Company. We currently have no capital commitments other than the
payment of rent on our facilities lease, one leased auto and for certain
research equipment.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

Certain of the information contained in this document
constitutes forward-looking statements, including but not limited to those
with respect to the future revenues, our development strategy, involve known and
unknown risks, uncertainties, and other factors which may cause our actual
results, performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the risks and
uncertainties associated with a drug delivery company which has not successfully
commercialized our first product, including a history of net losses, unproven
technology, lack of manufacturing experience, current and potential competitors
with significant technical and marketing resources, need for future capital and
dependence on collaborative partners and on key personnel. Additionally, we are
subject to the risks and uncertainties associated with all drug delivery
companies, including compliance with government regulations and the possibility
of patent infringement litigation, as well as those factors disclosed in our
documents filed from time to time with the United States Securities and Exchange
Commission.

ITEM 3. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.

The Company's management, with
the participation of the Company's Chief Executive Officer and Chief Financial
Officer and Principal Accounting Officer, has evaluated the effectiveness of the
Company's disclosure controls and procedures as of December 31, 2009. The
Company's Chief Executive Officer and Chief Financial Officer and Principal
Accounting Officer concluded that the Company's disclosure controls and
procedures are effective for gathering, analyzing and disclosing the information
the Company is required to disclose in the reports it files under the Securities
Exchange Act of 1934, within the time periods specified in the SEC's rules and
forms.

15

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PART II: OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

There are currently no legal proceedings against the Company or
any of its subsidiaries.

ITEM 2 - CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER
PURCHASES OF EQUITY SECURITIES

We did not issue nor purchase any equity securities during the
three months ended December 31, 2009 and 2008. Warrants to purchase 5,000,000
shares of Common Stock expired on December 31, 2009. There were 92,371,192
shares of Common Stock issued and outstanding as of December 31, 2009 and 2008
and there would be 109,631,192 shares of Common Stock issued and outstanding if
all warrants and assigned options were exercised as of December 31, 2009. There
remains 4,310,000 unassigned options as of December 31, 2009 which have been
previously approved for issuance.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

N/A

ITEM 4 - OTHER INFORMATION

None.

ITEM 5 - EXHIBITS AND REPORTS ON FORM 8-K

|(i)  | EXHIBITS.                                                                                                  
|---- | -----------------------------------------------------------------------------------------------------------
|     |                                                                                                            
|31.1 | Certification of C.E.O.
      Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                   
|31.2 | Certification of C.F.O. Pursuant to Section 302
      of the Sarbanes-Oxley Act of 2002.                   
|32.1 | Certification of Michael Lee
      pursuant to Section 1350 of Chapter 63 of Title 18 United States Code.  
|32.2 | Certification of Marcel Urbanc pursuant to
      Section 1350 of Chapter 63 of Title 18 United States Code.

(ii) REPORTS ON FORM 8-K

Not applicable

16

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SIGNATURES:

Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

DATED: February 12, 2010

ALPHARx, INC.By:
    /S/Michael M.
      LeeMichael M. Lee, Chief Executive OfficerDirectors:By:
    /S/Michael M.
      LeeMichael M. Lee, DirectorBy:
    /S/David
      MilroyDavid Milroy, DirectorBy:
    /S/Ford
      MooreFord Moore, Director


17

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